DBRS Confirms bcIMC Realty Corporation at AA, Stable

DBRS has today confirmed the Medium-Term Notes rating of bcIMC Realty Corporation (bcIMC Realty or the Company) at AA with a Stable trend. bcIMC Realty maintains a strong credit profile, with support from a solid balance sheet, very conservative credit metrics and the Company’s high-quality and diversified real estate portfolio, which features several premier Canadian properties, including Commerce Court in downtown Toronto, and Livingston Place and Western Canadian Place, both of which are located in downtown Calgary.

Operating income for bcIMC Realty’s portfolio increased in 2011, mainly due to strengthening office fundamentals (particularly in the Company’s core Calgary and Toronto office markets), and occupancy improvement across the majority of the portfolio. Property acquisitions during the year were minimal as bcIMC Realty instead continued to focus on its two large development projects – a Delta Hotel and an adjacent office building (Bremner Tower) located south of the financial district in downtown Toronto. From a financial standpoint, bcIMC Realty funded these development projects and modest acquisitions with operating cash flow. The Company’s debt-to-market value of assets ratio trended lower (16.1% as at Q4 2011) from the comparable period in 2010 as net free cash flow and equity contributions were used to repay debt. The Company’s debt-to-market value of assets ratio also benefited from increasing property market values.

bcIMC Realty’s AA rating is underpinned by the following credit strengths: (1) a large, diversified portfolio featuring several premier Canadian office properties; (2) conservative balance sheet ratios and debt limitations; and (3) strong pension and public-sector fund sponsorship and governance. The rating category also reflects the following challenges: (1) high exposure to the office segment; (2) property concentration; and (3) the underrepresentation of retail and industrial assets in the portfolio.

The stable rating outlook takes into consideration DBRS’s expectation that cash flow levels should grow at a reasonable rate in 2012 due to cash flow contributions from 18 York Street (which transferred to the Company’s income-producing portfolio on January 1, 2012, and is expected to contribute $12.5 million of annual stabilized net operating income) and higher rental rates on lease renewals. Support should also come from the limited amount of new supply in the Company’s core markets and overall improving fundamentals across each of bcIMC Realty’s asset segments. bcIMC Realty’s reasonable near-term lease maturity profile (an average of 11.1% per annum before the end of 2013), high-quality asset classes and stable residential portfolio should also provide good underlying support to portfolio metrics and the Company’s earnings profile.

While DBRS does not anticipate any significant acquisition activity in 2012, mainly due to the fact that a limited amount of quality assets are being brought to market and the property market remains competitive, the Company has the debt capacity and financial flexibility to take advantage of any property investment opportunities that may arise over the medium term. In Q1 2012, bcIMC Realty plans to issue $500 million of medium-term notes. These debt proceeds are expected to be used to pay down the Series 5 $250 million medium-term notes due September 19, 2012. Proforma the $500 million of medium-term notes and the repayment of the Series 5 notes, bcIMC Realty’s debt-to-market value of assets ratio increases to 20.0% from 16.1% as at Q4 2011. This level of leverage continues to remain below the 25% to 30% range reflected in the current rating category. Financial flexibility is also supported by the Company’s large pool of unencumbered assets, with more than sufficient room under its encumbered asset ratio covenant, if needed.

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

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