DBRS Confirms Galeries D’Anjou Shopping Centre Rating of BBB (high) with a Stable Trend

DBRS has today confirmed its BBB (high) rating of Galeries D’Anjou’s (D’Anjou or the Shopping Centre) First Mortgage Bonds, due November 1, 2012, with a Stable trend. The Shopping Centre’s credit profile remains stable, with modestly improving operating fundamentals and a satisfactory interest coverage ratio.

The rating confirmation reflects the following: 1) Commercial retail unit (CRU) sales per square foot have continued to increase modestly year over year from 2009 to the first eight months of the fiscal year 2010. Although sales per square foot continue to lag behind similar centres rated by DBRS, the figure of $481 per square foot, as of June 2010, is competitive with the Montrèal market. 2) Net operating income (NOI) continues to grow steadily year-over-year, with a 2% increase over 2008 in the fiscal year 2009 and an improvement of 3% for the first eight months of the fiscal year 2010 over 2009. The resulting interest coverage ratio, as of July 31, 2010, of 2.61 times is in line with the current rating category and satisfactory for a centre of D’Anjou’s caliber. 3) Bondholders have full recourse to Ivanhoe Cambridge I Inc. and Ivanhoe Cambridge II Inc. (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 $102 million in debt outstanding as of October 1, 2010.

DBRS believes D’Anjou’s credit metrics will remain in a satisfactory range for the current rating category going forward.

The rating is also limited by the following constraints: 1) Despite consistent year-over-year improvement in sales performance, the Shopping Centre continues to lag behind similar centres rated by DBRS. This can be attributed to heavy competition on the Montrèal retail market, specifically with Place Versailles. 2) The bonds are interest-only, significantly increasing the refinance risk as compared to a fully-amortizing structure. 3) D’Anjou’s anchor tenants (The Bay, Sears, and Zellers) continue to face difficulty in the market with competition from other discount retailers and decreases in consumer spending as a result of the economic downturn. DBRS believes these parent companies for these tenants could be forced to make strategic changes that could include store closures. However, it should be noted that DBRS would not expect this to impact the Shopping Centre for an extended period of time, given the location and quality of the property.

For more detailed information on the Project and the DBRS analysis, please refer to the full rating report available on the DBRS web site.

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

The applicable methodologies are Rating Real Estate and Canadian Structured Finance Flow-Through Ratings, which can be found on our website under Methodologies.