DBRS Assigns AAA Rating to 131 Queen Street Limited Mortgage Loan

DBRS has today assigned a rating of AAA to the 5.31% Mortgage Loan Due November 1, 2026 (the Mortgage Loan, as defined below) from The Standard Life Assurance Company of Canada (the Lender) to Morguard Corporation (the Borrower) in relation to the permanent financing following the construction of a building at 131 Queen Street, Ottawa (the Premises). 131 Queen Street is a Class A 13-storey mixed-use property in Ottawa comprising approximately 312,000 square feet (sq. ft.) of office space, 12,000 sq. ft. of retail space, and 36 furnished apartments (28,000 sq. ft.), for a total net rentable area of approximately 357,000 sq. ft. The complex was built in 2006. Morguard Corporation is the property manager.

In its analysis, DBRS considers that more than 85% of the building’s space is leased by the Government of Canada (the Federal Government), with the lease term nearly matching the term of the Mortgage Loan. This ensures a certain amount of income to the Borrower to cover its ongoing loan obligations. In addition, the Borrower has multiple other sources of income from the Premises (retail, apartments, parking) to cover non-recoverable expenses, the Ground Lease payments and any unforeseen costs.

The Mortgage Loan will be amortized over 25 years, which is greater than the 20-year term of the loan. As a result, there will be a projected balance of $28,410,999 of principal remaining to be paid on the Mortgage Loan at maturity on November 1, 2026. Thus, the rating considers the ability of the Borrower to refinance in 2026 to pay off the principal remaining on the Mortgage Loan. The Federal Government has an option to renew its lease for five years or to purchase the property at the end of its term in 2026. If it chooses to vacate the Premises, the Borrower will be forced to find other tenants for the majority of the building’s space.

In its analysis, DBRS assumed a number of worst-case scenarios at the time of refinancing to ensure that the probability of the Mortgage Loan being repaid was commensurate with a AAA rating. Under the DBRS stress scenarios, the Mortgage Loan was still repaid in full, which supports the assignment of a AAA rating to the Mortgage Loan.

Note:
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.