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 reflects the stable operating performance over the past year, while acknowledging that the property manager has yet to secure new tenants for 95% of the space being vacated by Borden Ladner Gervais LLP (BLG), which accounts for approximately 200,385 square feet (sf), or 10.1% of total leasable area. The Stable trend incorporates the expectation that this re-leasing risk would be manageable, given the Complex’s dominant location and a limited amount of comparable office supply under construction in downtown Toronto. DBRS takes additional comfort in the reasonable amount of lead time available to the property managers to market the space.

The A (high) rating continues to be supported by Scotia Plaza’s long-term lease to a strong anchor tenant (Bank of Nova Scotia (Scotiabank), rated AA with a Stable trend by DBRS), the high quality and favourable location of the Complex, and good debt service coverage. The rating also incorporates the aforementioned re-leasing risk and nominal growth in rental rates at the Complex.

Over the last year, the Complex continued to perform well, with strong occupancy rates (98.8% for Q2 2014). For the 12-month period ended June 30, 2014, the debt service coverage ratio (DSCR) and interest coverage ratio were 2.01 times (x) and 3.24x, 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 Scotiabank’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.