DBRS Confirms OMERS Realty Corporation (Centennial Place) at AA (low), Stable

DBRS has today confirmed the AA (low) ratings, with Stable trends, on the $210 million Centennial Place 3.666% Senior Series A Secured Bonds due 2022 and the $210 million Centennial Place 3.04% Senior Series B Secured Bonds due 2017 (collectively, the Bonds) of OMERS Realty Corporation (the Issuer or ORC; rated AA (low) with a Stable trend by DBRS), secured by Centennial Place (the Complex). DBRS notes that its rating reflects the overall credit risk profile of ORC and not the credit risk profile of Centennial Place on a stand-alone basis notwithstanding the fact the recourse for the Bonds is limited to this Complex. This is the case as the debt was issued by ORC and not a special-purpose entity that is remote to ORC. On May 15, 2013, DBRS upgraded the ratings on the Bonds, to AA (low) from A (high), with Stable trends. The upgrade was based on DBRS’s newly assigned Issuer Rating of AA (low) with a Stable trend on ORC.

ORC’s ratings reflect the strength of its owner, OMERS Administration Corporation (OMERS; rated AAA with a Stable trend by DBRS), quality institutional assets, financial profile and well-diversified tenant base. The rating also relies on the fact that ORC operates under stringent covenants and a legislative framework that stipulates it: (1) shall always be 100% owned by pension funds or other federally prescribed entities; (2) is unable to increase leverage, unless such leverage is used to invest in real estate assets; (3) is prohibited from issuing additional indebtedness if, post-issuance, the ratio of indebtedness to market value of assets exceeds 50%; and (4) will not incur any indebtedness, unless the total encumbered assets ratio (encumbered assets/aggregate assets) would be less than or equal to 50%. Encumbered assets are deemed to be those that have a loan-to-value ratio of greater than or equal to 15%.

The ratings also consider ORC’s high degree of geographic concentration in the Greater Toronto Area and Calgary markets, significant proportion of earnings from its top ten properties and considerable exposure to the office segment.

The Stable trends reflect DBRS’s expectation that ORC will continue to deliver steady growth in net rental income and EBITDA in the near to medium term. This growth should be driven primarily by higher rental rates in the portfolio’s retail and office segments, as leasing activity should benefit from limited supply in the Issuer’s core markets. In addition, ORC’s high-quality commercial real estate assets and stable residential portfolio should continue to support portfolio metrics and the Issuer’s earnings profile going forward. In terms of financial profile, DBRS expects ORC to manage its new investments and returns to OMERS in a manner that keeps key metrics consistent with the current rating category. The Company has a targeted leverage range of 35% to 45% on a total debt-to-market value of assets basis.

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 Real Estate Entities (April 2011), which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.