DBRS Confirms Galeries D’Anjou Shopping Centre at A (low), Stable

DBRS has today confirmed the rating on the First Mortgage Bonds (the Bonds) of The Cadillac Fairview Corporation Ltd. (CFCL) and Ivanhoe Cambridge secured by Galeries D’Anjou Shopping Centre (D’Anjou or the Shopping Centre) at A (low) with a Stable trend. The confirmation reflects the following: (1) continued improvement in sales performance; (2) minimal re-leasing risk before maturity of the Bonds; and (3) potential improvement in operating metrics with the opening of two department stores, Target and Simons, in 2013. As a result, given a conservative DBRS Refi loan-to-value ratio of 38.1% and good performance of the Shopping Centre, DBRS does not anticipate refinancing risk on the $102 million of First Mortgage Bonds due November 1, 2012.

The A (low) rating is supported by the following: (1) D’Anjou is a well-established regional shopping centre in the Anjou suburb of Montréal, with good road accessibility; (2) good interest coverage ratio of 2.67 times (x) within the parameters of the current rating category; and (3) strong ownership from CFCL and Ivanhoe Cambridge. The rating also takes into consideration the following challenges: (1) D’Anjou sales performance, while showing year-over-year improvement, continues to lag behind comparable DBRS-rated shopping centres in eastern and central Canada with commercial retail unit (CRU) sales of $500 per square foot (psf) to $600 psf; and (2) D’Anjou’s anchor tenants – The Bay and Sears – continue to face competition from discount-type retailers.

CRU sales have continued to trend upward for the year ended October 31, 2011 (YE 2011), increasing to $482 psf (+1.0%) from $477 psf in YE2010. This improvement was partly due to good consumer spending levels within the region and D’Anjou’s good tenant profile, which DBRS expects to improve with the arrival of Target in 2013 and the completion of a $86 million expansion and redevelopment project. The project includes introducing a new Simons department store, renovating The Bay and carrying out a makeover of the common area and food court. DBRS expects this project and the addition of Target to increase customer traffic and improve the Shopping Centre’s operating performance.

For YE2011, D’Anjou achieved stable net operating income (NOI) of $21.3 million, thanks to the increase in rental rates on leasing activities offset by a temporary increase in the CRU vacancy rate from the renovation. In addition, the interest coverage ratio of 2.67x at YE2011 remained within the parameters of the current rating category and satisfactory for a shopping centre of D’Anjou’s calibre. DBRS expects cash flow levels to remain relatively stable for the remaining term of the Bonds, underpinned by minimal near-term lease expiries (only 2.0% in 2012), of which approximately 60% has already been renewed, some at a higher rental rates.

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.