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Research: Rating Action: Moody’s upgrades Kapkowski Road Landfill Reclamation Improvement District (NJ) bond ratings to Ba1 and places bonds under review for possible upgrade

New York, June 29, 2022 — Moody’s Investors Service (“Moody’s”) has upgraded Kapkowski Road Landfill Reclamation Improvement District, NJ (“Kapkowski Project”) bonds from Ba1 to Ba2, and placed the ratings under review for a possible upgrade. The bonds were issued by the New Jersey Economic Development Authority.

The upgrade in Project Kapkowski bond ratings reflects the significant reduction in debt, following the decision by parent Simon Property Group, LP (Senior Unsecured, A3, Stable) to repay a $355 million loan on Jersey Gardens Mills in December 2021. The upgrade also reflects the increased level of financial support demonstrated by parent company Simon.

RATINGS RATIONALE

Notwithstanding the rating review, the Ba1 rating reflects the relative value of The Mills at Jersey Garden Mall (“the Mall”) as a shopping mall, whose payment in lieu of taxes (PILOT) secures the project’s obligations Kapkowski. The mall is a value-driven property adjacent to Newark International Airport that has a proven track record of resilience in the face of major shifts in consumer behavior from traditional brick-and-mortar to retail platforms. online retail. Supported by its competitive position, the mall has seen a continued financial recovery since the reopening of indoor malls in New Jersey in June 2020. The mall has historically demonstrated high relative profitability for its tenants. This profitability will support the Kapkowski project and tenant base, bolstered by strong property management by JG Elizabeth II, LLC (JGE II) as a wholly owned subsidiary of Simon Property Group, LP

Credit is challenged by the absence of a debt service reserve fund. However, the Kapkowski project receives liquidity support through an advance agreement by Midland Loan Services (NR) to ensure timely payment of debt service. We view these arrangements favourably, particularly for assets with high loan-to-value ratios and high levels of expected recoverability. Although credit has sometimes been negatively affected by the lack of timely financial information, recent levels of disclosure have improved. Consistent with our publicly stated policies, a lack of timely financial information would ultimately result in a rating withdrawal.

PILOT payments began in August 2004 and will end on the final bond payment date in February 2031. The PILOT payment for fiscal year 2022 is approximately $3.27 million per quarter, totaling $13.06 million dollars per year. PILOT payments increase by 10% every 5 years, with the next increase scheduled for May 1, 2025.

RATING OUTLOOK

The rating review will focus on the continued recovery of the Mills in Jersey Gardens and allow for a more detailed assessment of asset performance, including expected financial performance after repayment of $350 million mortgage debt , and on the dynamics of the tenants of the property. , as well as competitive dynamics.

FACTORS THAT CAN LEAD TO IMPROVED RATINGS

– Evidence of improved financial performance which should remain stable

– Long-term improvement in project-level liquidity position and/or creation of a debt service reserve fund with adequate funding – Change in industry conditions favoring brick-and-mortar retail or tenants less exposed to competition

FACTORS THAT MAY LEAD TO LOWER RATINGS

– A change in the competitive position in the market or in the tax environment resulting in lower occupancy rates or sales

– A decline in financial performance such that PILOT coverage falls below 2.0x on a sustained basis – Visitor levels decline noticeably with no sign of a rebound, causing projected financial metrics to remain weak for an extended period – Economic conditions point to a prolonged recessionary environment

LEGAL SECURITY

Bonds are payable only from PILOTs made by JGE II to the City of Elizabeth, which has assigned payment to the Bondholder Trustee. If there is a shortfall in the PILOT payments, which are remitted quarterly to a trustee, the total value of the PILOT will not be accelerated. The NJ Landfill Improvement Act provides for the imposition of a special levy as a relief taxation mechanism for the PILOTS lien. The city’s assessment ordinance sets the special assessment lien at $180 million and requires it to be paid while the bonds are outstanding, or 30 years, whichever is lower. There is no explicit rate agreement, but the agreement is structured so that fixed PILOT payments provide sufficient debt service coverage.

PROFILE

JG Elizabeth II, LLC was formed for the purpose of operating and owning the factories in Jersey Gardens for long term investment and is a wholly owned subsidiary of Simon Property Group, LP JG Elizabeth II, LLC is responsible for pilots quarterly for a subsidiary, New Jersey Metromall Urban Renewal LLC, which is legally obligated to pay the PILOTS to the trustee. Simon replaced Glimcher Realty as owner and operator of the mall in January 2015.

The Mills at Jersey Gardens is a value-driven, two-level enclosed fashion and entertainment mega-mall in Elizabeth, New Jersey with approximately 1.3 million square feet of gross leasable area . It is located approximately three miles from Newark International Airport and 15 miles from Manhattan off Exit I3A of the New Jersey Turnpike in an urban enterprise area with a reduced sales tax rate. Billed as “New Jersey’s largest mall”, Jersey Gardens has approximately 200 stores and is located in northern New Jersey and the New York metropolitan area.

METHODOLOGY

The main methodology used in these ratings is the Generic Project Finance Methodology published in January 2022 and available at https://ratings.moodys.com/api/rmc-documents/361401. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued without modification as a result of such disclosure.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

David Kamran
Senior Analyst
Project funding
Moody’s Investors Service, Inc.
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Angelo Sabatelle
Additional contact person
Project funding
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

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