DBRS Confirms Primaris Retail REIT at BB (high), STA-3 (low) Following Proposed Acquisition of Five Properties

DBRS has today confirmed the Issuer Rating and Stability Rating of Primaris Retail Real Estate Investment Trust (Primaris or the Trust) at BB (high) and STA-3 (low), respectively. The trend is Stable. The action follows the announcement of Primaris’ proposed acquisitions of five enclosed shopping centres from Ivanhoe Cambridge (the Acquisition) for $572 million. Primaris intends to buy a 100% interest in Oakville Place, Burlington Mall, Tecumseh Mall, St Albert Centre and Place Vertu. In conjunction with the Acquisition, Primaris has also announced the issuance of 11 million trust units at $20.60 per unit and $75 million of 5.4% extendible convertible debentures.

The rating confirmation takes into consideration that, from a financial risk perspective, the Acquisition is expected to have a neutral impact on the Trust’s balance sheet ratios. DBRS expects Primaris to finance the Acquisition with a $230 million bridge facility, the aforementioned equity and debenture issuance, $24 million on the Trust’s line of credit and $50 million of cash on hand. Primaris has indicated that its objective is to replace the bridge facility with permanent debt financing on Burlington Mall and Oakville Place. DBRS estimates that overall debt ratios would effectively be unchanged and EBITDA interest coverage ratio would modestly improve into the 2.20x range pro forma as of March 31, 2011, keeping key metrics within the current rating category.

The rating confirmation also takes into consideration the fact that the Acquisition meaningfully increases the size and scale of Primaris’ portfolio by adding approximately 2.5 million sq. ft. of gross leasable area (an increase initially of about 23% to about 13.6 million sq. ft.). The acquired properties, particularly Oakville Place and Burlington Mall, enhance the Trust’s presence in the Greater Toronto Area and the overall quality of the portfolio. Oakville Place and Burlington Mall are both well located close to or next to major highways, are well occupied (97.6% and 97%, respectively) with nationally recognized tenants, such as the Bay, Zellers and Canadian Tire, and are well maintained having undergone expansions/renovations over the past five years.

Overall, DBRS believes the Acquisition improves Primaris credit and stability risk profiles within the BB (high) and STA-3 (low) rating categories by increasing the Trust’s portfolio size, improving the portfolio and modestly improving property diversification. Going forward, further enhancement of the Trust’s portfolio quality (including further acquisitions of high quality shopping centres and the potential conversion of some of the Trust’s Zellers stores to Target Corp. stores) and portfolio size above 15 million sq. ft. with stable financial metrics could benefit the credit and stability ratings.

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.
DBRS’s rating definitions and the terms of use of such ratings are available at www.dbrs.com.