DBRS Finalizes Provisional Ratings of West Edmonton Mall Property Inc. First Mortgage Bonds

DBRS has today finalized its provisional ratings of “A,” with Stable trends, to the $900 million of Series B Bonds (the Bonds), comprising $350 million 4.309% First Mortgage 10-Year Interest Only Series B1 Bonds and $550 million 4.056% First Mortgage 10-Year Amortizing Series B2 Bonds, issued by West Edmonton Mall Property Inc. (the Issuer) and secured by the Issuer’s interest in West Edmonton Mall (the Project or WEM) located in Edmonton, Alberta, after the closing of the Bonds offering. The Issuer is structured as a bankruptcy-remote, single-purpose entity. The net proceeds from the Bonds were 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 Series B2 Bonds have an amortization period of approximately 22.3 years. The combined outstanding debt balance of the Bonds is approximately $712 million at maturity.

The “A” rating is based on a DBRS refinance debt service coverage ratio (DSCR) of 1.55 times (x) and a DBRS refinance loan-to-value (LTV) of 62.9%. These metrics were formulated by using a debt constant of 8.25%, a capitalization rate of 8.05% and DBRS stabilized net cash flow (NCF) of $91.1 million (see the DBRS Cash Flow Analysis and Loan Sizing section on page 8 for details). These key assumptions incorporate DBRS’s view of the quality and location of the Project, the diversified tenant profile and 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.

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

The applicable methodology is Rating Entities in the Real Estate Industry, which can be found on our website under Methodologies.