DBRS Confirms bcIMC Realty Corporation at AA, Stable

DBRS has today confirmed the rating of bcIMC Realty Corporation’s (bcIMC Realty or the Company) Medium-Term Notes at AA with a Stable trend. The confirmation reflects bcIMC Realty’s steady operating performance and accepts a moderately higher degree of financial leverage in the Company, as overall credit metrics remain within the parameters acceptable for the current rating category.

bcIMC Realty’s AA rating is underpinned by the following credit strengths: (1) a large, high-quality and diversified real estate 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 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.

Net rental income for bcIMC Realty’s portfolio grew at a reasonable rate in 2012, mainly due to higher average rental rates across the office and retail segments of the portfolio and full-year contributions from 18 York Street, which was transferred to the Company’s income-producing portfolio on January 1, 2012. This improvement was partially offset by occupancy declines in the office and residential segments 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 continued to fund its development projects and modest acquisitions primarily with operating cash flow and asset dispositions. The Company’s debt-to-market value of assets ratio trended higher (20.1% as at Q4 2012) from the comparable period in 2011, as proceeds from debt issued during the year were used to fund a modest net negative free cash flow position and significant equity redemptions.

The stable rating outlook takes into consideration DBRS’s expectation that cash flow levels should grow at a reasonable rate in 2013, mainly due to higher rental rates on lease renewals. Leasing support should also come from the limited amount of new supply in the Company’s core markets and overall robust fundamentals across each of bcIMC Realty’s asset segments. In addition, bcIMC Realty’s high-quality commercial real estate assets 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 2013, mainly due to a highly competitive real estate market, the Company has the debt capacity and financial flexibility to take advantage of any property investment opportunities that may arise over the medium term. bcIMC Realty’s 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.

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.