NEW YORK - Standard & Poor's Ratings Services said it lowered its rating on Kinston Housing Authority (Kinston Towers Project), N.C.'s $3.2 million series 1994A bonds to B from BB. The outlook is stable.
The downgrade reflects debt service coverage below the 1.0x level over the past three years; contract rent above fair market rents, limiting the ability of the project to receive rental increases; a decline in net rent compared with the previous year; and an increase in expenses leading to deterioration of the expense ratio.
The latest audited financial results for the year ended Dec. 31, 2005, indicate a slight deterioration in the performance of the property. This is reflected in debt service coverage of 0.94x, down from 0.95x in 2004. The property has not received a rental increase since 2002 because contract rents are above fair market rents. Furthermore, HUD has denied the project's 2005 application for a rental increase. Expenses increased to $3,905 per unit per year in 2005, up from $3,837 in fiscal 2004 primarily due to a 16% increase in utilities expenses, which constitute 36% of total expenses.
