DBRS Confirms Oakville Place and Southgate Shopping Centre at "A" with a Stable trend

DBRS has confirmed the rating on the Secured Debentures (the Debentures) of Oakville Place and Southgate Shopping Centre (Oakville and Southgate or the Properties) at “A” with a Stable trend. The rating reflects Oakville and Southgate’s solid operating performance and credit metrics. The rating takes into consideration the following:

(1) Southgate achieved commercial retail until (CRU) sales per square foot of $787 for F2008, representing a decrease of 1% year-over-year. DBRS notes that this level of sales per square foot is among the highest of DBRS-rated shopping centres. Although the pace of sales growth in Alberta has slowed over the past year, DBRS expects Southgate’s sales performance to remain strong throughout the remainder of 2009 and into 2010 and this should translate into higher average CRU rental rates on the expiring CRU space going forward.

(2) Southgate has completed the expansion program, adding over 100,000 sf of additional space, and is expected to increase NOI going forward. The expansion project has brought many luxury tenants to Southgate and has successfully re-configured previously vacant space to accommodate new tenants. Overall, these projects should further enhance the Properties’ competitive position within their respective markets and improve overall customer appeal.

(3) Based on the stable operating metrics at both the Properties and the capital spending projects, DBRS expects moderate growth in NOI and debt service coverage ratio (DSCR) going forward.

The rating also reflects: (1) The Properties have an excellent loan-to-value, with only $63.1 million in debt outstanding as at October 1, 2009. (2) Bondholders have full recourse to Ivanhoe Cambridge I Inc. and Ivanhoe Cambridge II Inc. (collectively, Ivanhoe Cambridge). DBRS views Ivanhoe Cambridge as a solid investment-grade credit.

The rating takes into consideration the following challenges: First, the Series II AND Series III debentures mature in October 2010, with a balloon payment of $60.6 million, and will either have to be paid out or new financing terms arranged. This introduces re-finance risk and DBRS has projected potential scenarios of new coverage ratios upon re-finance. Given the low amount of debt outstanding against the debentures upon maturity, DBRS has estimated a re-finance DSCR range of 3.97 times to 4.34 times. This range is based on a stressed cash flow scenario that estimates losses of 50% to 100% of current, vacant, expired, month-to-month, and temporary tenants. Based on this estimated DSCR range, given a stressed scenario as well as the properties’ historically strong performance, DBRS views this risk as manageable.

Secondly, Oakville and Southgate are subject to considerable competition within their respective markets. Oakville competes with numerous shopping centres in the western part of the Greater Toronto Area, including Sherway Gardens and Square One. Southgate must contend with the mega-sized West Edmonton Mall.

Overall, DBRS views these risks as manageable considering the Properties noted credit strengths and low leverage, the current rating category remains appropriate.

Note:
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.