DBRS Assigns Provisional Ratings of “A” to West Edmonton Mall Property Inc., First Mortgage Bonds

DBRS has today assigned provisional ratings of “A”, with Stable trends, to the $900 million of Series B Bonds (the Bonds) comprised of $* million % First Mortgage 10-Year Interest Only Series B1 Bonds and $ million *% First Mortgage 10-Year Amortizing Series B2 Bonds to be issued by West Edmonton Mall Property Inc. (the Issuer), and to be secured by the Issuer’s interest in West Edmonton Mall (the Project or WEM) located in Edmonton, Alberta. The Issuer is structured as a bankruptcy-remote, single-purpose entity. The net proceeds from the Bonds will be used to fund the acquisition of the Series A Defeasance Collateral, the repayment by an affiliate of certain borrowings incurred by such affiliate, the Reserve Accounts required under the Trust Indenture, and for general corporate purposes. The principal amount for each of the Series B1 Bonds and Series B2 Bonds to be issued will be determined on the closing date provided that the combined amortization period for the Bonds is 30 years. The Series B2 Bonds will have an amortization period of * years. The combined outstanding debt balance of the Bonds will be $723 million at maturity assuming an interest rate of 4.65% and an overall amortization period of 30 years.

The “A” rating is based on a DBRS refinance debt service coverage ratio of 1.53 times and a DBRS refinance loan-to-value ratio of 63.9%. These metrics were formulated by using a debt constant of 8.25%, capitalization rate of 8.05% and DBRS stabilized net cash flow of $91.1 million. These key assumptions incorporate DBRS’s view of the quality and location of the Project, the diversified tenant profile and the favourable economic conditions in Alberta and Edmonton. They also incorporate the fact that a large proportion of WEM’s retail leases will expire prior to the Bonds’ maturity date (DBRS notes that generally current in-place rents are modestly below market), the potential volatility of the Alberta and Edmonton economies and the competition from other retail and leisure venues in Alberta and Edmonton.

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.