DBRS Upgrades Three Classes and Confirms Three Classes of N-45° First CMBS Issuer Corporation, Series 2003-2

DBRS has today upgraded the ratings of N-45° First CMBS Issuer Corporation, Series 2003-2 as follows:

Class B to AA (high) (sf) from AA (sf)
Class C to AA (low) (sf) from A (sf)
Class D to BBB (high) (sf) from BBB (sf)

In addition, DBRS has confirmed the ratings of three classes as follows:

Class A-1 at AAA (sf)
Class A-2 at AAA (sf)
Class IO at AAA (sf)

All trends for the rated classes of the transaction remain Stable.

This transaction consists of two loans secured by the Bankers Hall Building and the Royal Bank Building in Calgary.

The rating upgrades reflect the improved performance of the two loans in this transaction. As of the July 2011 remittance report, those two loans reported a weighted-average DSCR of 2.07x, as compared with 1.50x at issuance. There are currently no loans on the servicer’s watchlist or in special servicing.

Both properties are well located in Calgary’s downtown core, connected to Calgary’s “Plus 15,” which is a network of above-ground walkways that connect downtown buildings. Based on the March 2011 rent rolls, Talisman Energy occupies 14.4% of the NRA in the Bankers Hall building and 3.9% of the NRA in the Royal Bank building, on leases through February 2015. EnCana Corporation, who occupies 13% of the NRA in the Bankers Hall building, recently renewed a portion of their space that had expired at the end of 2010, however, there is a potential for them to vacate some of the space they occupy at lease expiry in December 2014, due to their plans to make the newly constructed building, “The Bow,” their new headquarters.

As of the March 2011 rent roll, the Bankers Hall building was 99% occupied and the Royal Bank Building was 81% occupied. The 81% occupancy rate at the Royal Bank Building represents a decline from the 99% occupancy rate at YE2009, however, Altus Insite reports the property to have only 3.7% of the NRA directly available and 9.2% of the NRA available for sublease.

The tenant rollover concern is mitigated by the positive absorption that has recently occurred in the Calgary office market. According to CresaPartners LLC, the Calgary office market showed absorption of 2.1 million square feet in 2010 and 583,864 square feet for Q1 2011. Further, the loan performance has been strong since issuance. The YE2010 net cash flow at both properties has grown, on a weighted average basis, by approximately 13% over YE2009. The loans mature November 1, 2013.

The DBRS analysis included an in-depth review of the two loans in the transaction. In its analysis, DBRS reviewed YE2010 operating statements and March 2011 rent rolls for both properties. DBRS continues to monitor this transaction on a monthly basis, with further updates to be published in our Monthly CMBS Surveillance Report.

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

The applicable methodologies are CMBS Rating and CMBS Surveillance, which can be found on our website under Methodologies.