OREANDA-NEWS. Fitch Ratings has assigned a 'BBB' rating to the following City of Sunrise, Florida (the city) special assessment bonds (the bonds):

--\$70.9 million special assessment bonds, federally taxable series 2015 (parking garages project).

The bonds are scheduled for sale on a negotiated basis on or about Feb. 25. Proceeds will be used to construct two public parking garages at the Sawgrass Mills Mall (the mall) located in Sunrise, Florida.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from special assessments levied on certain properties within the mall located within the city. The special assessments are levied on the property tax bill, beginning with the fiscal 2017 tax bill, and carry a co-equal lien on taxable property with property taxes. A cash-funded debt service reserve fund (DSRF) funded to maximum annual debt service (MADS) provides additional security.

KEY RATING DRIVERS

CONCENTRATED REVENUE STREAM: Fitch notes single site risk inherent in the transaction. While a portion of the costs of special assessments paid by the developer is expected to be recovered from mall tenants as part of their obligations under their leases, Simon Property Group (Simon or the developer), the owner of the mall through its subsidiaries is ultimately responsible for paying the assessment.

HIGH PERFORMING ASSET: The mall is Florida's largest outlet and value retail destination. Sales are in excess of \$1 billion and income metrics are among the highest in Simon's extensive portfolio. Occupancy rates have averaged 98% over the last six years.

ADEQUATE BONDHOLDER PROTECTIONS: Fitch believes adequate bond holders protections support timely debt service payment. In the unlikely event special assessments are not paid, a cash funded debt service reserve fund covers payments until receipt of pledged tax certificate proceeds.

LIMITED TAX/TIGHT COVERAGE: The special assessment will initially be levied at the maximum annual rate of \$2.48 per square foot, producing slim 1.01x coverage. Revenues are not based on assessed value and therefore protected from valuation declines. The planned mall expansion is expected to create some cushion with a reduced assessment rate on larger total square footage to maintain coverage.

MARKET RISK/LONG BOND TENOR: Mall operations are exposed to changes to its competitive landscape or other events which could hamper viability. The 30-year term of the bonds increases the likelihood that adverse market developments could erode mall performance.

RATING SENSITIVITIES

DETERIORATION IN ASSET PERFORMANCE: A significant and sustained increase in vacancy rates or other measures of mall performance could result in negative rating action.

ANNUAL DISCLOSURE OF PROPERTY PERFORMANCE: The developer is expected annually to provide Fitch with financial information on mall operations in order for Fitch to ascertain property quality.

CREDIT PROFILE

The city (GO bonds rated 'AA' with a Stable Outlook) is located in southeastern Florida in Broward County. Encompassing 18 square miles, the city is located about six miles west of Fort Lauderdale. The city's population of about 90,000 represents a moderate increase since 2000.

HIGH PERFORMING ASSET
The mall is one of the largest shopping centers in Florida totaling over 2.8 million square feet of building space and among the 10largest in the U.S. Over 350 shopping, dining and entertainment venues are located within 2.3 million square feet of retail space. The mall is an especially attractive draw for tourists, especially international tourists. The mall's 44 million visitors in 2012 rendered it Florida's second largest tourist attraction next to Disney World.

The mall is owned and managed by affiliates of Simon. Simon is the largest publically traded real estate company and largest owner of regional malls and outlet centers in the nation. The mall was one of the highest volume shopping center in the U.S. in 2012 with over \$1.44 billion in gross sales and is among the top income generators within Simon's extensive portfolio.

Sawgrass Mall is situated in the affluent but competitive market which includes Broward County (GO bonds rated 'AAA' with a Stable Outlook), Palm Beach County (GO bonds rated 'AAA' with a Stable Outlook) and Miami-Dade County (GO bonds rated 'AA' with a Stable Outlook). Competitive advantages include the mall's breadth and variety of its retail offerings and easy access to Interstate 75, Interstate 595 and the Sawgrass Expressway. In addition, more than 100 outlet retailers located at the mall are exclusive to south Florida.

The fiscal 2014 assessed value of properties subject to special assessments totaled \$456 million. The land to lien based on fiscal 2014 assessed values and inclusive of allocated overlapping debt of the city, county and county school board is an adequate 5.8x. Based on a past appraisal of the mall which was much higher than current assessed value, Fitch believes that land to lien ratio may be conservative.

STRONG OCCUPANCY TRENDS
Occupancy levels have historically been strong. Current occupancy of leased space is 93.5%, which is unusually low. Since 2008, occupancy has generally averaged about 98%, according to the developer. The lower occupancy is due to the loss of anchor tenant, J.C. Penney (IDR rated 'CCC' with a Positive Outlook). That space will be kept vacant and eventually will be incorporated into the planned mall expansion. The expansion is expected to add significant additional square footage to the special assessment base.

SINGLE SITE AND TAXPAYER CONCENTRATION RISK
The bonds are payable from special assessments levied solely on mall properties owned and managed by affiliates of the developer. Four relatively small parcels within the mall area are owned by other organizations and are not subject to special assessments. Bond repayment is highly exposed to the economic performance of the mall as well as risks associated with single site facilities such as natural and man-made hazards.

Payment responsibility is partially diffused through tenant lease agreements which obligate mall tenants to pay a pro rata share of property taxes and special assessments. However, the developer is ultimately responsible for the assessments and retention of tenants and overall viability of the mall is reliant upon the ability of the mall operator to generate sufficient sales to cover tenant costs, including property taxes and the additional burden of special assessments.

MARKET RISK
The 30 year tenor of the bonds elevates the risk that future changes in the economic or market landscape could have an adverse impact upon mall operations. Mall activities are subject to any number of events including online shopping, economic cycles, changes in the local market, management turnover etc. which may challenge future performance.

The mall has no third party lender mortgage debt outstanding as \$850 million of debt was repaid by Simon last January which affords it substantial flexibility both operationally and financially. Re-leveraging of the mall would not ordinarily be a concern for Fitch given the first priority lien of property tax and special assessments. However, the addition of underlying debt could place additional pressure on mall performance and net valuations.

ADEQUATE BONDHOLDER PROTECTIONS UNDER STRESS CONDITIONS
Fitch believes that the cash-funded DSRF funded to MADS combined with Florida's tax certificate process provide an effective mechanism for timely payment of debt service even in the unlikely event that special assessments are not paid.

Special assessments beginning with the fiscal 2017 tax levy will be levied on the county property tax bill, subject to tax certificate sale upon delinquency. The tax certificate process ensures that funds at least equal to the taxes levied, including special assessment, are received by the taxing jurisdictions as long as certificate buyers believe the asset has sufficient value to repay the certificates. The portion of proceeds from tax certificate sales related to the special assessments is specifically pledged to bond debt service. Fitch considers the mall to be a high quality asset, likely to retain enough value even in a go dark situation to motivate buyers to purchase tax certificates.

In a stress scenario where special assessments fall short or are not paid, DSRF monies bridge the funding gap between the May 1st principal and interest bond requirements each year and the receipt of tax certificate sale proceeds in July. Under this scenario, DSRF monies are tapped for the May 1st bond payments. Funds from the tax certificate sale, usually held in July, would be used replenish the DSRF for the May 1st draw and provide sufficient funds for the Nov. 1st interest only payment. This mechanism could be in place until mall operations are restored, debt service is fully paid or the property is foreclosed with proceeds used to pay outstanding debt.

LIMITED TAX/NARROW DEBT SERVICE COVERAGE
The pledged special assessments are akin to limited taxes allocated based on square footage of taxable properties and therefore not vulnerable to property value fluctuations. The city plans to levy the maximum \$2.48 per square foot in the first year (fiscal 2016) to generate approximately \$6 million, which net of the 4% early payment discount and associated costs, provides a slim 1.01x coverage of MADS.

The maximum special assessment rate has been established based on MADS requirements. Any additional gross lease area created by the expansion will also be subject to special assessments. The added space will have the effect of allowing the city to levy special assessments below the maximum rate but afford a modest taxing cushion if needed.