DBRS Confirms Market Mall at “A” with a Stable Trend

DBRS has today confirmed its “A” rating of Market Mall’s (the Shopping Centre) 6.64% FM Bonds, Series A, due 02/2014. The Shopping Centre’s credit profile remains stable with support from strong sales performance, improving credit metrics and favourable economic conditions in Alberta.

The current rating is based on the performance of the Shopping Centre and reflects the following factors:

(1) Market Mall continues to benefit from strong consumer spending levels and a healthy, oil- and gas-based economy in Calgary. The Shopping Centre achieved year-over-year growth in sales performance with a significant uplift in commercial retail unit (CRU) sales per square foot to $795, representing an increase of 8.8%. This level of sales performance ranks among the top of regional shopping centres rated by DBRS. Although the pace of sales growth will likely moderate over the next two years, DBRS expects Market Mall’s CRU sales performance to move into the low $800 per sq. ft. range throughout 2008 and believes the strong demand for retail space in Calgary will continue in the near term. This is evidenced by the low CRU vacancy rates at Market Mall (2.4% in 2007).

(2) The Shopping Centre’s improved sales performance and low vacancy rates continue to drive higher average CRU net rental rates. This improvement is highlighted by the moderate increase in net interest income (NOI) levels and coverage ratios for the Shopping Centre. For F2007, interest coverage and debt service ratios were 3.73 times and 2.50 times, respectively, and compare favourably with other shopping centres rated by DBRS.

(3) Bondholders have full recourse back to (a) The Cadillac Fairview Corporation Ltd. (CFCL) for 50%; and (b) Ivanhoe Cambridge I Inc. and Ivanhoe Cambridge II Inc. (together Ivanhoe Cambridge) for 50% (collectively, the Co-Owners) on a several basis, in proportion to their respective interests. DBRS views the Co-Owners as solid investment-grade credits.

(4) The Shopping Centre’s loan-to-value ratio is very conservative, with $118.9 million in outstanding debt as at October 31, 2007.

The rating is also limited by certain constraints. First, Market Mall’s anchor tenants (The Bay and Zellers) continue to face significant competition from discount-type retailers and changing trends in retail formats, including new power centre layouts. DBRS believes that this could potentially result in at least one of the noted tenants undertaking strategic changes, including possible store closures. DBRS notes, however, that any potential disruption would likely be short term in nature, given the overall quality and location of the Shopping Centre. Overall, DBRS views this risk as manageable considering the Shopping Centre’s noted credit strengths and has reflected this in the current rating category.

Second, Market Mall has a moderate amount of space maturing over the 2008 to 2009 period. While this presents some exposure to releasing risk, DBRS considers this manageable and does not anticipate any leasing challenges, particularly given the Shopping Centre’s strong performance of late; indeed, higher rental rates are expected on lease renewals in the near term. DBRS notes that Zellers has renewed its lease for another five years under similar terms and conditions.

Overall, DBRS expects that Market Mall will likely continue to exhibit a strong level of NOI and solid operating metrics in the favourable economic climate of Alberta, providing underlying support to the credit profile in 2008.

Note:
All figures are in Canadian dollars unless otherwise noted.