Fitch Affirms Denver West Metropolitan District, CO's ULTGO Bonds at 'A-'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the 'A-' rating on the following Denver West Metropolitan District (the district), Colorado bonds:

--$56.5 million unlimited tax general obligation (ULTGO) bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by an unlimited property tax levy.

KEY RATING DRIVERS

ROBUST BUILDING ACTIVITY/POSITIVE TAX BASE GROWTH: The mature tax base of the district is now benefiting from resumed development activity. Assessed value (AV) demonstrated solid growth in fiscal 2014 after three years of moderate declines.

HIGH TAX BASE CONCENTRATION: Taxpayer concentration remains a concern for Fitch. The district's largest taxpayer at 25% of AV - Simon Property Group, Inc. has an issuer default rating of 'A'/Stable.

FINANCIAL FLEXIBILITY: The district is not subject to property tax limitations under the Tax Payer Bill of Rights (TABOR), providing financial flexibility.

DISTRICT OPERATIONS LIMITED: District operations are limited in scope, with no full-time employees. Therefore, Fitch does not consider operating risk a material credit factor.

MIXED OCCUPANCY RATES: Occupancy rates at the district's retail centers remain high while rates are weaker at the district's office park.

WEAK DEBT PROFILE: The district's overall debt burden is high as a percentage of market value, and amortization is well below average. Fitch believes future debt is likely although the timing is unknown.

RATING SENSITIVITIES

INCREASED DEBT BURDEN: Sizable debt issuance or sustained tax base losses could prompt a negative rating action, as the debt burden is already high and shouldered by a limited number of taxpayers.

CREDIT PROFILE

Organized in 1984, the district is located primarily in Lakewood, CO, approximately 10 miles west of downtown Denver. The district encompasses approximately 516 acres and was created to provide infrastructure for commercial, retail, and residential development.

The district is located adjacent to Interstate Highway 70, which is the primary east/west route through the Denver metropolitan area and the State. 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, an auto dealership, two retail strip centers, and several owner-occupied office buildings. Two luxury apartment complexes totaling 573 units also 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 date (1998 and 2003, respectively).

District operations are limited in scope, funded by property taxes and specific ownership taxes. The majority of expenditures are consumed by debt service and capital outlay. The district has no full-time employees. The district's unrestricted general fund balance equaled a high 167% of general fund spending in fiscal 2013, but is small as a dollar amount at $922.5 million. Fitch does not consider operations to be a material credit risk.

HIGHLY CONCENTRATED TAX BASE

The district's top 10 taxpayers accounted for a very high 58% of assessed value (AV) in fiscal 2013, which Fitch views as a concern. The Colorado Mills Mall/Simon Property is the largest taxpayer at 25% of AV. Prospects for increased taxpayer diversity are minimal.

Fitch views positively Simon Property Group's solid investment grade rating and the district's advantageous location adjacent to the major east/west route through the Denver metropolitan area with access to the recently completed light rail, connecting the district to the downtown Denver rail hub.

HIGH DEBT LEVELS

The district's overall debt levels are high at 14% of fiscal 2013 market value. Management is in the process of amending the district's service plan and increasing the debt limit in order to accommodate growth-driven capital needs in the south area of the district, as well as for general maintenance requirements. While future bonding is likely, Fitch expects near-term funding for capital needs will come through pay-go or the levy of a special assessment. Principal amortization is well below average, with only 32% of all debt to be repaid within 10 years.

TAX BASE IMPROVEMENT

After a cumulative tax base decline of 11.7% from 2010 through 2012 and no growth in fiscal 2013, AV increased by 6.5% in fiscal 2014, led by development within the district. The next reassessment will be in 2015 (impacting fiscal 2016 tax collections). Management projects AV will continue to increase over the next several years, driven by construction activity occurring within the district, including activity at the Promenade at Denver West, the Shoppes at Denver West, two new restaurants at Denver West Village, and the Lodge apartment complex. Fitch views these AV growth assumptions as reasonable although unlikely to alter taxpayer concentration levels.

Management expects the property tax rate to remain level over the next couple of years. Fitch notes positively that district voters' permanent waiver of TABOR limitations provides additional financial flexibility. The district is not subject to any property tax limitations.

MIXED 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 occupancy rate at Colorado Mills Mall and Denver West Village (which Simon Property also owns) is high at 94% and 99%, respectively. Denver West Village is a 310,000 square-foot retail center featuring a multi-screen theatre and various retail stores and restaurants. Taxable sales activity at the retail centers increased 4% ($13.4 million) in fiscal 2013 over the prior year.

The office component of the district has experienced some weakening, with occupancy rates at the Denver West Office Park at a low 65%. Lower occupancy levels are primarily a result of the loss of two major tenants over the past two years. Fitch will be concerned if management's estimates for an improvement in occupancy rates over the next 18 months to 2 years do not come to pass.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from CreditScope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, and the National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=846954

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Contacts

Fitch Ratings
Primary Analyst
Nicole Wood
Associate Director
+1-212-908-0735
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Jose Acosta
Senior Director
+1-512-215-3726
or
Committee Chairperson
Amy Laskey
Managing Director
+1-212-908-0568
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Nicole Wood
Associate Director
+1-212-908-0735
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Jose Acosta
Senior Director
+1-512-215-3726
or
Committee Chairperson
Amy Laskey
Managing Director
+1-212-908-0568
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com