DBRS Upgrades Exchange Tower Limited to A (high) with a Stable Trend

DBRS has today upgraded the 6.83% Series A First Mortgage Bonds, due April 2012 (the Bonds) issued by Exchange Tower Limited to A (high) from A (low). The Bonds are secured by the owners’ interest in the Exchange Tower office complex (the Project). The upgrade reflects the strong operating fundamentals of the Project in addition to the low leverage and the positive outlook for the asset through the remaining term of the Bonds, including the refinance profile.

The Project is a 1.03 million-square-foot office property constructed in 1980 and located in Toronto’s financial district in the Downtown Core submarket. The largest tenant at the property, Department of Justice Canada, with approximately 19.5% of the net rentable area (NRA), recently renewed its lease for three years through 2016. The second-largest tenant at the property is the Toronto Stock Exchange, with approximately 17.5% of the NRA on a lease through 2018.

The property was 93.3% occupied at September 30, 2011, with Altus InSite reporting availability in the submarket of 8.1% as of October 2011. The debt service coverage ratio (DSCR) has fallen slightly from YE2009, when it was 2.35 times (x), to 2.04x at YE2010 as a result of a decline in occupancy for the period, but it is still considered healthy for an asset of this class and location. In addition, the loan-to-value (LTV) of 45.4%, based on a stressed value derived by DBRS with a reversionary cap rate, is considered strong. DBRS anticipates the Bonds will repay in full at maturity in April 2012.

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

The applicable methodologies are Rating Real Estate Entities, which can be found on our website under Methodologies.