DBRS confirms Place Laurier at A (low)

DBRS has today confirmed the 10.55% Series A and 7.37% Series D Secured Debentures of Place Laurier (the Shopping Centre) at A (low) with a Stable trend. The confirmation reflects the fact that Place Laurier continues to perform well with support from good operating fundamentals and solid credit metrics.

The current rating is based on the performance of the Shopping Centre, which reflects the following: (1) Place Laurier has a prominent position within Québec City and is well located near the downtown area with good access (2) Although Place Laurier achieved minimal net operating income (NOI) growth in 2008, mainly due to higher property taxes and modestly higher rental rates on lease expiries, Place Laurier’s coverage ratios continue to remain at excellent levels compared with other DBRS-rated shopping centres. DBRS notes that this also is partly due to the very conservative debt levels secured against the Shopping Centre. For the year ended December 31, 2008, debt service coverage and interest coverage were 3.46 times and 4.25 times, respectively. (3) The Shopping Centre has an excellent loan-to-value ratio, with only $64.6 million in debt outstanding as of September 10, 2009. (4) Series A debenture holders have full recourse to Ivanhoe Cambridge Inc., who DBRS views as a solid investment-grade credit. DBRS notes that the Series D Secured Debentures have recourse to the Shopping Centre only.

The rating is also limited by the following constraints: (1) Place Laurier’s anchor tenants (The Bay, Sears and Zellers) continue to face significant competition from discount retailers and changing trends in retail formats, including new power centre layouts. DBRS believes this could potentially result in at least one of the noted tenants undertaking strategic changes, including possible store closures. DBRS notes, however, any potential disruption would likely be short 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. (2) Place Laurier’s commercial retail unit (CRU) sales performance of $487 per square foot is in line with competitors in its marketplace. Although the Shopping Centre’s sales performance has shown year-over-year improvement over the past several years, it is still below the level of other prominent Canadian regional shopping centres rated by DBRS, many of which have sales in the $500 to $700 per square foot range.

Overall, DBRS expects the Shopping Centre’s credit profile to remain stable in 2009 and 2010 with underlying support from generally good leasing conditions and reasonable CRU lease expiries in the near term, which should continue to provide stability to cash flow and current operating metrics.

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