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Rating Action:

Moody's upgrades to Aa3, A3 and Baa2, the underlying ratings of Island Palm Communities LLC Trust Certificates, Series 2005 Classes I, II, and III; outlook stable

24 Apr 2015

New York, April 24, 2015 -- Moody's has upgraded the underlying ratings of Island Palm Communities LLC (IPC) (formerly known as Army Hawaii Family Housing LLC) Trust Certificates, Series 2005 Classes I, II and, III to Aa3, A3 and Baa2 from A1, Baa1 and Baa3 respectively. The outlook on all Classes of bonds is stable. The rating action affects $1,145.0 million of Class I debt, $250.0 million of Class II debt, and $202.5 of Class III debt.

A portion of the Class I bonds and all of the Class II and III bonds are insured pursuant to a bond insurance policy provided by National Public Finance Guarantee Corporation (A3/negative).

SUMMARY RATING RATIONALE

The rating affirmations are based on healthy operating performance demonstrated by several years of recent audited financials, expected positive impact on project performance from the 2015 BAH adjustment, and strong occupancy and demand. However, the project will face principal amortization on all classes of debt beginning in FY2016. While debt service coverage ratios (DSCRs) have grown substantially, we expect a decline at the beginning of FY2016 due to the increase in debt service related to the schedule principal amortization. Despite the future increases in debt service, we expect that recent BAH increases and sustained high occupancy of the project to support the current rating levels.

OUTLOOK

The stable outlook on all classes of debt speak to the expectation that coverage will remain stable as the recent BAH increases will mitigate the increase in debt service.

WHAT COULD MAKE THE RATING GO UP

• Substantial and sustained financial performance (evidenced by stronger DSCRs) along with high occupancy and continued BAH increases.

WHAT COULD MAKE THE RATING GO DOWN

• Decline of financial performance with substantially reduced debt service coverage (DSC)

• Defense spending cuts could lead to reduced military activity. Changes in the defense budget which would substantially reduce troop levels at the bases.

• A decline in the rating of National Public Guarantee Guarantee currently rated A3/negative)

OBLIGOR PROFILE

The borrower is Island Palm Communities LLC. The borrower is a for-profit limited liability company with two voting members, an affiliate of Lend Lease (the Managing Member) and the United States of America represented by the Secretary of the United States Army. The developer, Lend Lease, is a majority-owned subsidiary of the Lend Lease Corporation - an Australian-domiciled international group with three core businesses: Bovis Lend Lease, Integrated Property Development, and Real Estate Investment. Lend Lease Corporation has assets in excess of $7 billion and has been involved in 27 military installations with a unit count of 40,675 as well as 41 military installations with military lodging facilities totaling 14,075 hotel rooms.

LEGAL SECURITY

The Army conveyed to IPC a leasehold interest in the federally-owned land at the seven residential communities located on base within the U.S. Army Hawaii Region and will convey the existing DoD-owned housing units on such land. The term of the ground lease is 50 years with a 25 year extension option. As such, IPC has a leasehold interest in the land and a fee interest in the housing projects/improvements. Both the land and the improvements will revert to the Government at the end of the lease term.

The bonds were issued to finance the demolition, construction, and renovation of housing units for military families at Island Palm Communities in Hawaii. There are three tranches of debt - Class I (A and B), Class II, and Class III (A and B). The interests of the Class II and Class III bondholders are subordinate in priority of payment to the interests of the Class I bondholders

USE OF PROCEEDS

The nearly $1.6 billion in proceeds from these taxable bonds, together with an equity contribution of $8 million from the developer, are being used to 1) fund the costs associated with the design, demolition, construction, renovation, and rehabilitation of 8,132 housing units in six military multi-family rental housing communities on the island of Oahu in and around the City of Honolulu, Hawaii. ;

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Global Housing Projects published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Ferdinand S. Perrault
Vice President - Senior Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

David Parsons
Asst Vice President - Analyst
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades to Aa3, A3 and Baa2, the underlying ratings of Island Palm Communities LLC Trust Certificates, Series 2005 Classes I, II, and III; outlook stable
No Related Data.
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