DBRS Confirms Ratings of Fifth Avenue LP & 1023803 Alberta Ltd.

DBRS has today confirmed the rating on the First Mortgage Bonds (the Bonds) of Fifth Avenue LP & 1023803 Alberta Ltd. secured by Fifth Avenue Place (FAP or the Complex) at “A” with a Stable trend. The rating confirmation reflects the Complex’s stable operating performance over the year, while acknowledging that the property manager has yet to secure new tenants for the space being vacated by Imperial Oil Limited (the Company or Imperial) in 2016. Imperial announced the decision to leave its premise on September 28, 2012, after which DBRS confirmed the rating of the Bonds (see October 1, 2012, press release). This confirmation was based on DBRS’s view that the property manager would be able to re-lease a majority of the vacating space at economics that would preserve the current credit rating. This is still DBRS’s expectation based on the high quality and good location of the Complex, the substantial lead time to find new tenants (2.5 years) and Imperial’s below-market rental rates at the Complex. However, in the event that the Calgary leasing environment becomes challenging over the next few years, and/or the economics of the new tenant leases are less favourable to the property than those under Imperial’s current lease, DBRS would reconsider the rating and its outlook.

The “A” rating continues to reflect FAP’s good location in downtown Calgary, below-market in-place rent rates, and the strength of the sponsors. The rating also takes into consideration the aforementioned re-leasing risk, volatility of the Calgary office market and nominal growth in rental rates at the Complex.

Over the last 12 months (LTM) ended September 30, 2013, FAP’s net operating income (NOI) increased modestly to $43.3 million versus $41.7 million for YE2012, mainly due to in-place rent step-ups in three leases (Westcoast Energy Inc., Lightstream Resources Ltd and Enbridge Inc.). Correspondingly, debt service and interest coverage ratios improved within the rating category to 1.81 times (x) and 2.70x for LTM ended September 30, 2013, from 1.74x and 2.54x for YE2012, respectively. DBRS expects FAP to maintain occupancy levels in the 99% range due to a modest level of lease expiries between now and 2015. As a result, DBRS also expects NOI and coverage ratios to remain stable.

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 Entities in the Real Estate Industry, which can be found on our website under Methodologies.

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