Fitch Affirms Brentwood, MO's TIF Revs (Brentwood Square Project) 'A-'; Outlook Stable

As part of its continuous surveillance effort, Fitch Ratings takes the following rating action on Brentwood MO's Tax Increment Financing (TIF) revenue bonds:

--$5.44 million Brentwood Square Project TIF revenue bonds affirmed at 'A-'.

The Rating Outlook is Stable.

SECURITY

The bonds are limited obligations of the city, payable solely from Payments in Lieu of Taxes (PILOTS), Economic Activity Tax Revenues (EATS) and Municipal Revenues subject to appropriation by the city, and Transportation Development District (TDD) revenues subject to appropriation by the District. Additionally there is a cash funded debt service reserve totaling $900,000.

KEY RATING DRIVERS

STRONG FINANCIAL PERFORMANCE: While the revenue supporting the bonds is dependent mainly on sales tax, a limited and economically volatile source, revenues for the district has have remained stable and in line with historic results.

DECREASING LEVERAGE: The district continues to prepay principal ahead of projections which has decreased leverage and when combined with the cash funded debt service reserve fund provides a significant cushion against potential revenue declines.

REVENUES SUBJECT TO APPROPRIATION RISK: The transfer of EATS, Municipal Revenues, and TDD revenues are subject to appropriation risk although incentive to appropriate is high given that there are no other permitted uses of those revenues.

STABLE LOCAL ECONOMY: The district is located in a market area with favorable economic characteristics which support the retail base.

CONCENTRATION: There is considerable point of sale concentration with the top five sales tax payers accounting for approximately 88% of total 2010 sales tax revenues in the district.

CREDIT PROFILE

Brentwood Square encompasses a 0.031 square mile area including a shopping center consisting of approximately 250,000 square feet of primarily retail tenants. The shopping center in Brentwood Square opened in 2001, and tenants include Whole Foods, REI, and Nordstrom Rack. There are nine total tenants and considerable concentration with the top five retailers accounting for 88% of total tax collections.

PILOT payments are irrevocably pledged and are defined as revenues attributable to the increase in assessed valuation (AV) of real property within the district over and above the initial AV of the real property as of Dec. 31, 1998. The $2.36 million base property value for purposes of calculating PILOT payments was set in fiscal 1998; and the 2010 incremental value totaled $4.61 million; thus there is a moderate base ratio of 34%. Based on acreage, the district is 100% built-out, and therefore any future incremental value growth will occur solely due to appreciation of the existing commercial properties. The property tax rate within the district is passive, as the rate is set by the aggregate rates of all overlapping municipalities and may be adjusted at their sole discretion. PILOTS that are due and owing constitute a lien against the real estate. One private developer pays the vast majority of the PILOT payment, which amounts are indirectly generated from tenant lease payments. If developer's PILOT payments were disrupted, other pledged revenue would be adequate to fully cover debt service.

EATS are defined as 50% of the total additional revenue from taxes imposed generated by economic activities within the district over the amount generated within the district in fiscal 1998, excluding TDD Revenues, hotel, motel licenses, fees or special assessments. Municipal Revenues are 100% of the total additional revenues (other than EATS, PILOTS, and TDD revenues) received by the city generated by economic activities within the district over the amount of such taxes generated within the district in fiscal 1998 including retail sales, and utility tax. EATS and municipal revenues are subject to appropriation by the city and EATS represent the majority of revenue at approximately 66% of the total. In addition TDD revenues are defined as 0.625% sales tax collected by the city pursuant to the collection agreement with the Hanley Road Corridor TDD, subject to annual appropriation. Appropriation risk for TDD revenues, municipal revenues and EATS are low as there are no other permitted uses for those revenues.

The bonds are structured with a 2023 bullet maturity with a special mandatory redemption feature whereby all excess revenues must redeem the bullet maturity. This structure provides payment flexibility for the district as the bonds are partially secured by historically volatile sales tax revenues. Current revenues in fiscal 2010 covered the required annual interest payment by 6.94x. Assuming no growth in revenues from 2010 levels, the 2023 maturity should be retired by 2014. Based on a stress scenario of 23% annual revenue declines beginning in 2011 the bonds would be fully repaid by maturity in 2033. However, given the extremely small geographic area, point-of-sale concentration, the presence of abundant local competitors, and PILOT payer concentration, there is significant risk of future sales tax revenues declining materially and permanently.

The city of Brentwood is a small suburban community in St. Louis County (rated 'AAA' by Fitch) approximately 1.5 miles from downtown St. Louis. Management noted that although there are competing shopping centers nearby, both districts command rents in line with the metropolitan St. Louis market and vacancies are minimal. Wealth levels in the county are above average with per capita income 146% of the state and 134% of the national norms, unemployment was on par with the state and slightly below the national rate at 8.4% as of September 2011. Economic development in Brentwood has been steady, and the addition of a 220 room hotel scheduled to begin construction in 2012 is expected bring additional related businesses to the area.

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 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, 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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

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