DBRS Confirms bcIMC Realty Corporation at AA, Stable Trend

DBRS has today confirmed the Medium-Term Notes rating of bcIMC Realty Corporation (bcIMC Realty or the Company) at AA, with a Stable trend. bcIMC Realty maintains a strong credit profile, with support from a solid balance sheet, very conservative credit metrics and improving diversification. The rating confirmation incorporates the fact that bcIMC Realty, through significant property acquisitions and development projects, has made progress in enhancing overall diversification and broadening the size and scale of its real estate portfolio over the past few years. During the 12 months ending September 30, 2008, the Company has acquired approximately $1 billion of properties, with a focus in western Canada. These properties consist of multi-tenanted industrial buildings, four hotels (three of which are under the Delta banner) and three large office towers: Park Place in Vancouver and BP Centre and Energy Plaza in downtown Calgary.

While DBRS views these investments as a positive by reducing property concentration risks and improving the quality of the portfolio, bcIMC Realty’s portfolio continues to have a significant weighting in the Toronto and Calgary office markets. In the near term, DBRS expects this exposure to increase as the Company’s current development pipeline is weighted toward these markets and includes two large office towers, 18 York Street in Toronto (46% pre-leased) and Jamieson Place in Calgary (96.4% pre-leased). In addition, DBRS notes that both these markets have a significant amount of new office space (including the previously noted projects) scheduled for completion between 2009 and 2011, with more than three million square feet in Toronto and five million square feet in Calgary currently under construction.

Given the amount of new supply and the current economic downturn, DBRS expects office fundamentals to weaken throughout 2009 and into 2010, which could put pressure on the Company’s office portfolio. The Company also has exposure to re-leasing risk, with 40% of its office space set to mature during the 2009 to 2011 period. Overall, DBRS believes this exposure is manageable given the Company’s high-quality and diversified real estate portfolio and very conservative financial profile.

The rating continues to reflect the following credit strengths, which offset the existing concentration risks:

(1) bcIMC Realty’s real estate portfolio, diversified across office (represents 47.5% of NOI), residential (19.8%), industrial (14.0%), hotel (9.7%) and retail properties (9.0%), continues to provide a solid base of cash flow and exhibit occupancy rates in the mid-90% range or above in each asset type (excluding hotels). As at Q3 2008, the overall portfolio had a strong occupancy rate of 95.6% and has benefit from recent acquisitions that have higher average occupancy rates than the existing portfolio, particularly in the office portfolio. Going forward, DBRS expects cash flow levels to continue to improve throughout 2009 as incremental income is realized from recent property acquisitions and completed development projects (Livingston Place in Calgary). bcIMC Realty’s lease maturity profile (an average of 11.2% per annum over the next three years) should provide reasonable stability of cash flow. Over the medium term, DBRS expects bcIMC Realty to seek to enhance its earnings profile by further reducing its exposure to the relatively more volatile office and hotel sectors and gradually re-invest cash flow into the industrial and retail segments.

(2) bcIMC Realty has a very conservative financial profile, with strong coverage and balance sheet ratios relative to traditional real estate companies. The Company’s leverage has trended modestly lower as property acquisitions and debt reduction were predominantly financed with proceeds from asset sales, gross free cash flow and equity contributions from pension fund clients over the past year. As at Q3 2008, bcIMC Realty was well below its debt incurrence covenant of 35% and its intended operating level of 30% of the market value of assets, with a debt-to-market value ratio of 18.6%. The Company has a manageable amount of near-term debt maturities, including $200 of medium-term notes maturing at the end of 2009. DBRS does not expect bcIMC Realty will have any difficulty refinancing this debt as the Company has good access to capital and a large pool of unencumbered assets, with more than sufficient room under its encumbered asset ratio covenant if needed.

Overall, DBRS believes bcIMC Realty’s very conservative balance sheet, with strong financial flexibility and modest capital requirements in 2009, and its high-quality and diversified portfolio provide underlying support to the Company’s credit profile in light of the challenging credit market conditions and potentially weakening office fundamentals in 2009.

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

The applicable methodology is Rating Real Estate, which can be found on our website under Methodologies.

This is a Corporate rating.