DBRS Confirms Place Laurier Secured Debentures at A (high), Stable

DBRS has today confirmed the A (high) ratings, with Stable trends, on the 10.55% Secured Debentures, Series A and the 7.37% Secured Debentures, Series D (collectively, the Secured Debentures) of Ivanhoe Cambridge, Inc. secured by Place Laurier (the Shopping Centre). The confirmation reflects Place Laurier’s improvement in net operating income (NOI) and credit metrics, while noting the potential opportunities for further improvement in operating metrics with the opening of Target at the Shopping Centre in the fall of 2013.

The A (high) ratings are supported by the following: (1) Place Laurier has a prominent position on the north shore of Québec City and near the downtown area; (2) higher debt service coverage ratio (DSCR) than the bulk of comparable shopping centres rated by DBRS, at 3.63 times (x) for the year ended December 31, 2011 (YE2011); (3) excellent loan-to-value (LTV) with $59.7 million of debt outstanding secured against the Shopping Centre; and (4) good sponsorship from Ivanhoe Cambridge, Inc. The ratings also take into consideration the following challenges: (1) Place Laurier’s anchor tenants (The Bay and Sears) continue to face competition from discount-type retailers; (2) commercial retail units (CRU) sales per square foot (psf) at $503.50 (YE2011) is at the low range of DBRS rated shopping centres; and (3) two competitors, Les Galeries de la Capitale and Place Fleur de Lys are close by, both with Target stores opening in 2013.

Place Laurier’s NOI has continued to trend upwards for YE2011, improving to $25.6 million from $25.0 million in YE 2010. The improvement is driven mainly by increases in rental rates on re-leasing activities and lower vacancy rate of 5.8% at YE2011. As a result of the NOI improvement, both DSCR and interest coverage have improved to 3.63x and 4.72x, respectively, and remained higher than most comparable DBRS-rated shopping centres. On the other hand, CRU sales psf have decreased to $503.50 (YE2011) from $510.70 (YE2010), mainly due to lacklustre performance from electronic stores. Going forward, DBRS expects the replacement of Zellers with Target will increase customer traffic and improve the Shopping Centre’s operating metrics in the near term. In terms of future re-leasing activities, there are a modest amount of leases expiring in the next two years (3.6% in 2013 and 5.9% in 2014). Currently, approximately 40% of the lease renewals in 2013 are complete, all at higher rates, which will benefit NOI growth and provide stability in cash flow for the near future.

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.