DBRS Confirms Rating on SP Limited Partnership and SP1 Limited Partnership (Scotia Plaza) at A (high), Stable Trend

DBRS has today confirmed the rating on the $650 million 3.21% First Mortgage Bonds (the Bonds) of SP Limited Partnership and SP1 Limited Partnership (each an Issuer and collectively, the Issuers), secured by Scotia Plaza (the Complex) at A (high) with a Stable trend. The rating confirmation is based on operating performance as expected over the last year, and also acknowledges that since DBRS’s initial rating, Borden Ladner Gervais LLP (the Complex’s second largest tenant, accounting for 10.6% of the total leasable area) has decided to leave its premises at the Complex in 2016. DBRS’s initial A (high) rating incorporated the expectation that this re-leasing risk would be manageable given the Complex’s dominant location and the limited office supply under construction and development in Toronto’s Financial District. DBRS takes additional comfort in the long lead time available to the property managers to market the space.

DBRS’s rating continues to be based on Scotia Plaza’s long term lease to a strong anchor tenant (Bank of Nova Scotia, rated AA, Stable trend), the high quality of the office complex, the dominant position in downtown Toronto’s Financial District, and the good credit metrics. The rating also reflects the aforementioned re-leasing risk and nominal growth in rental rates at the Complex. DBRS refinance loan-to-value (LTV) and refinance debt service coverage ratio (DSCR) derived from the loan sizing are supportive of the A (high) rating category.

Over the last year, the Complex continued to perform well, with strong occupancy rates (99.3%). For the annualized three month period ended June 30, 2013, debt service coverage and interest coverage ratios were 1.97 times (x) and 3.20x, respectively, in line with DBRS’s expectations and appropriate for the current rating category. Going forward, DBRS expects the Complex financial metrics to remain stable due to the low risk cash flow contributions from Bank of Nova Scotia’s lease. In addition, occupancy levels are expected to stay near current levels due to minimal lease expiries until 2016.

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 methodologies are Rating Real Estate Entities and CMBS Rating Methodology, which can be found on our website under Methodologies.

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