DBRS Rates Dundee Properties Limited Partnership Commercial (Adelaide Place First Mortgage)

DBRS has assigned a rating of BBB (low), with a Stable trend, to the 4.795% Initial Loan due February 1, 2015 by a major Canadian financial institution (the Lender) in relation to Adelaide Place.

The Initial Loan was originated in 2009 and is amortized over 25 years. It had an outstanding balance of $111,196,431 as of May 1, 2013. In July 2012, the Lender advanced an additional $40,000,000 (the Additional Loan) to Dundee Properties Limited Partnership (the Borrower), with the same maturity and amortization profile. In the event of a borrower default under the Mortgage, the Additional Loan will be subordinated and postponed to the Initial Loan.

Both the Initial Loan and Additional Loan are secured by a freehold interest in approximately 655,000-square foot office complex and a leasehold interest in 1,652 square feet of undeveloped land. Known as Adelaide Place, the office complex is located at 181 University Avenue and 150 York Street in the Financial Core of Toronto.

The amortization profile of the Initial Loan is greater than the term. As a result, there will be a projected balance of $105,863,646 of principal remaining to be paid on the Initial Loan at maturity on February 1, 2015. DBRS assumes that the Borrower will refinance in 2015 to pay off the principal remaining on the Initial Loan and the rating considers the ability of the Borrower to refinance.

Based on its own underwriting of the property cash flows, DBRS derived a stabilized net cash flow (NCF) for the property of $12.7 million, which translates to term and refinance debt service coverage ratios (DSCR), each of which is greater than one. The refinance DSCR is reflective of an 8.25% constant that DBRS applied to the balloon balance of both the Initial Loan and the Additional Loan, to account for an increased cost of capital upon maturity. The DBRS loan value going-in and at maturity (as evidenced by an 8.0% capitalization rate applied to DBRS stabilized NCF, without giving credit to cash flow growth over the term of the mortgage) is in excess of 90%.

The relatively short remaining term to maturity of the Initial Loan (which is 18 months), coupled with DBRS’s underwriting of in-place rental cash flows, the reasonable per square foot loan balance and the amortization that will occur as at maturity are collectively supportive of the BBB (low) rating.

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.