DBRS Confirms City of Vancouver at AA and R-1 (middle)

DBRS has today confirmed the Issuer Rating, Long-Term Debt and Commercial Paper ratings of the City of Vancouver (the City or Vancouver) at AA and R-1 (middle), respectively. The trend on all ratings remains Stable, supported by the City’s relatively affluent property tax base, a lengthy record of healthy operating results and limited direct operating responsibilities. Despite near-term softening in the real estate prices, the City continues to benefit from sound economic conditions, population growth, prudent management practices, and the continued monetization of the investment in the Vancouver Athletes’ Village (now known as The Village on False Creek, or the Village).

In 2011, the City posted a $173 million operating surplus, as measured by DBRS, supported by a 1.88% property tax increase, higher utility and user fees, and continued spending restraint, which helped keep expenditure growth below the five-year average. Net of capital expenditures, a $39 million surplus was recorded. The 2012 budget remains balanced, with revenue growth supported by a 2.84% property tax increase, higher user fees and development charges, although policing and other inflationary costs continue to pressure expenditures. The City continues to derive operating efficiencies and cost savings from the ongoing service review, which has been extended for another three years to ensure proper implementation of existing initiatives and explore new transformational and continuous improvement projects. The latest quarterly update points to a surplus for 2012, supported by favourable variances in development revenues and cost recoveries.

The City’s DBRS-adjusted net tax-supported debt burden remains relatively high at $2,535 per capita. A key component of this is the debt related to the development of the Village. By year-end 2011, Village-related liability stood at $460 million, down from $515 million in the prior year. Proceeds received from the court-appointed receiver from the sale of Village assets are being used by the City to pay down the related liability. Occupancy in the Village now stands at over 80%; all commercial properties are fully leased, and less than 300 of the 737 market units remained unsold at year-end 2011, with a number of sales completed since then. Despite a softening in Vancouver’s real estate market overall, the increased occupancy, commercial activity and vibrancy in the Village are expected to help drive sales of the remaining market condominiums units, and demand for the market rental and commercial properties within the portfolio. The risk remains that the City may not realize the full value of its initial investment, although this risk has moderated as recent developments are encouraging. The City remains optimistic that it will monetize all Village assets by year-end 2014. Capital expenditures have now returned to pre-Olympic Games levels, but steady expansion of the capital needs of the regional transportation authority will continue to pressure the City’s debt burden. However, the City’s DBRS-adjusted net tax-supported debt is expected to fall to below $2,000 per capita within the next two to three years, as the Village-related debt is repaid, thus improving overall financial flexibility.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Canadian Municipal Governments, which can be found on our website under Methodologies.