DBRS Confirms Bankers Hall Bonds at A (low)

DBRS has today confirmed the rating on the $300 million 4.377% Senior Secured Bonds (the Bonds) secured by Bankers Hall LP’s (the Issuer) 50% interest in Bankers Hall (the Complex) located in Calgary, Alberta, at A (low) with a Stable trend. The rating is based on the high quality and favourable location of the Complex, below-market in-place rents and the strength of the sponsors and property manager. The rating also reflects the volatility of the Calgary office market, as well as the risk of oversupply from upcoming development in the Calgary office market.

Since DBRS’s initial rating, the Complex has continued to perform well and was fully occupied as at Q1 2014. For the last 12 months ended March 31, 2014, debt service coverage and interest coverage ratios were 1.78 times (x) and 2.44x, respectively, in line with DBRS’s expectations and appropriate for the current rating category. Going forward, DBRS expects the Complex to maintain strong occupancy levels due to a modest amount of lease expires per year until 2018. DBRS also expects net operating income to modestly increase primarily due to in-place rent step-ups. As a result, coverage ratios are expected to hold relatively steady in the near term.

DBRS notes that the downtown Calgary office market has shown some signs of slowing over the last year as softening demand and an increase in sublet space have resulted in an 8.13% vacancy rate as at Q1 2014. Furthermore, the current construction of five new office buildings in downtown Calgary is likely to restrain net rental growth in the next few years. This would be exacerbated by a protracted recession in the oil and gas industry should it occur. In the event that the Calgary office leasing environment continues to be challenging over the next few years and/or the economies of the new tenant leases are less favourable to the Complex than those under current tenant’s leases, DBRS would reconsider its rating and outlook.

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.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.